Thursday, 2 November 2017

Top 5 Bankruptcy Myths Debunked

When people
get under insurmountable debt and keeping up with loan repayments and credit
card bills, etc. become almost impossible, then bankruptcy offers them a chance
for a clean slate- to start fresh and bring the situation under control.

What is Bankruptcy?

When an
individual or organization is incapable of honouring their financial
obligations, they can file for bankruptcy. For this, they have to file a
petition in the court where all their outstanding debts are assessed and
removed.

Although
bankruptcy is a fairly common concept, there are many myths surrounding it,
some of which are:

1. Bankruptcy Makes You Lose Everything

Many people
tend to develop a fear for home loans, personal
loans, etc. thinking if they couldn’t repay, they can end up becoming
bankruptcy and lose everything- their house, money, other assets, etc. However,
nothing could be further from the truth.

While it’s
true that going bankrupt isn’t quite a bed of roses, it’s certainly the best
option when your finances are out of control and you are unable to bear the
strain of debt. Most importantly, it’s your best shot at saving your precious
assets. In a large number of cases, the government or the concerned financial
institution allows the bankrupt person to repay their debt on the terms that
they are comfortable with.

2. Bankruptcy Removes all your Debts

This is
probably one of the most harmful myths that have been floating around for quite
some time. Many people are led to believe that bankruptcy will solve all their
problems and simply make all of their loans and other forms of debts disappear.
However, this is a grey area which they must learn about.

While it’s
true that bankruptcy can help wipe away debts like credit card debt through a
discharge, there are certain debts like tax debts, child support, and misc.
fees etc. which cannot be discharged.

3. Bankruptcy Makes your Life Hell

There is a
stigma attached to bankruptcy in the society. When someone files for
bankruptcy, people jump to the conclusion that the person is irresponsible
towards their credit management, and it’s their own fault that their CIBIL
rating is damaged and they are under high stress. However, it’s only in
few cases when people run into serious issues like divorce, job loss, or a
serious illness.

Bankruptcy is
meant to improve your financial situation and not worsen it further. So, it
should not be looked upon at otherwise.

4. Bankruptcy Ruins your Credit Permanently

There is no
denying that bankruptcy greatly affects your CIBIL rating. However, the idea that its nature is permanent, is
nothing but a delusion.

People make
credit-related mistakes all the time. They make late payments on a consistent
basis, stick to making minimum payments on their credit cards, default on
loans, and what not. However, it’s rare that the damage done is permanent. In
most cases, including bankruptcy, you can always start over and restore your
creditworthiness.

5. Bankruptcy Makes It Impossible to Buy a Home Again

People fear
that after going bankrupt they won’t be able to apply for a home loan ever
again. They think that no bank would ever trust them. However, truth is that
many people do get home loans even
after going bankrupt. They work on their credit report and build a high score.
Thus, when they do apply for a loan, banks observe their efforts and don’t mind
giving them a second chance.

So, these
were the top bankruptcy myths that misguide the people and influence them
towards making wrong decisions. This only proves that informing yourself with
the right credit management practices and bankruptcy laws is important.

If you
don’t want to see a day when you have to file for bankruptcy, then make it a
point to manage your finances responsibly. Always monitor your credit card
usage and maintain a monthly budget so that you know how much you are spending
and how much you are saving. Simple things like these alone can greatly prevent
an instance of bankruptcy in the future.